Evolution of Accounting and its Importance in Business

Hey there! TallyDekho is here to acknowledge the readers about the evolution of accounting and how it plays an important role in every business organization from a small scale to a large scale. In today’s article, we’ll discuss the emergence of early accounting ways and how it became a full-fledged profession.

Since ancient times, when the business culture was first started, accounting had always been a crucial part of every business concern. Well, in the initial days, accounting was just concerned with debit and credit. But, with its evolution, this activity has become more than just recording transactions.

What is Accounting?

Basically, what accounting practitioners do is to translate the finance complications into a summarized numerical statement that is easy to understand. So, accounting refers to the process of recording and maintaining all the financial accounts of the business. The end-results of the process serve a summary of financial transactions, cash outflows, inflows that helps to determine the financial position of the business.

Types of Accounting

As accounting has now become a profession, it has taken many forms and types, but majorly, there are three types of accounting:

• Managerial Accounting
• Cost Accounting
• Financial Accounting

Evolution

Since the evolution of accounting, there has been a complete transformation of the accounting process from beginning to the modern accounting process.

Ancient Accounting

In the early times, a thousand years back, the people used to record goods traded and received and maintained records involving animals, livestock and crops. Also, the great economist and philosopher Chanakya had written a book named “Arthashastra”. The book explains the details and tells how to maintain the books of accounts.

Bookkeeping Era

Then, later on, the era of bookkeeping came up when society was practicing the barter system. Till the time, there was no cash trading yet and the transactions were recorded with narratives and descriptions of a transaction for the good or service provided.

Modern Accounting

In modern accounting, no recording of the transaction is done by hand, everything is done with various tools like special accounting softwares, tally software, and so on. The new advancements in the modern accounting system have made the profession more intuitive and thereby, helping the business to maintain every single detail in a super fast and easy way.

Objectives of Accounting

It is right to say that no business can run effectively if its accounting process does not go well. So, accounting holds an indispensable place for every business. Below are the objectives of accounting. Let’s see some of them:

Ascertaining the financial position

When the accountant prepares the financial statements, those statements help the business in ascertaining and analyzing its financial position for the respective period. Thus, the most important objective of accounting is to ascertain the financial position of the concern.

Recording the financial transactions systematically in the books of accounts

Discipline is very important for any business. A good accounting system ensures the recording of the financial transactions consistently so that a proper book of accounts is maintained and every transaction is recorded to ensure transparency.

Provides a base in preparing financial statements

Without maintaining proper books of accounts, preparing financial statements is not possible. And, that’s why accounting provides a base to the accountant to prepare the financial statements at the end of the financial year.

Maintaining the record of cash inflow and outflow

The other important objective of accounting is to keep the record of every cash inflow and outflow taking in the place. This is essential to maintain an adequate level of working capital. Also, cash is seen as the backbone of the business, so its regular check is needed.

Prepares a base for performance comparison

If there would be no financial statements, there will be no base available for comparing the performance in the two respective years. So, the accounting process lays a base for performance analysis of the business.

Helps in formulating the suitable business policies

If the results are good and financial statements show good turnover, it indicates the policies are going well. On the other hand, if the business isn’t doing well and the financial statements don’t show good results, it means there is a need to formulate new business policies or adjust the existing one. So, accounting helps in the execution of suitable business policies.

Helpful in ensuring the accuracy of accounts

An ideal accounting process is the one that ensures the accuracy of accounts and financial statements as well. Thus, the other vital objective of accounting is to ensure the accuracy of accounts to promote reliability and transparency.

Low chances of frauds and manipulation of data

When complete detailed accounts are maintained wherein every single transaction is recorded, the chances of fraud and manipulation get reduced. Thus, a good accounting process is very important for any business.

Reduces cost and induces efficiency

The financial statements help to analyze the tendencies of cost reduction and how the cost control can be done. So, it’s the objective of accounting to ensure the efficiency of the business and promote cost-effectiveness as well.

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